NACA funded sale's structure advice, please. TY!

[Ari B.]

A buyer is interested in purchasing my listed flip using NACA funding. Other BP sellers seem to have had successful NACA transactions and I'm inclined to accept the offer. The issue is that the program can take 6 months to a year to fund. The home is vacant and buyers want to take possession immediately. They seem to be reasonable folks who are open to figuring out the fairest way to make that happen.

My understanding of NACA is that borrowers receive 100% financing with no down payment, closing costs, or fees. I am trying to determine the best way to structure this deal.

Sale Price: $245,000

Market Rent: $2,000

Buyer willing to put down a non-refundable $4,000 fee (option fee, down payment, however we want to classify it).

Possible structures considered:

1.  Lease Option:  I like that buyer has skin-in-the-game with the non-refundable $4,000 option fee.  Rent would be at market and no rent credits would be provided.

2. Installment Contract/CFD/Seller-financing: Not sure how that would affect their ability to qualify for the loan. Could possibly be construed as a refi instead of a purchase, but not sure if that matters to NACA.

Thanks much for the advice!!

[J Scott]

I've sold at least a dozen houses to NACA buyers, and I'm a big fan of the program.

Here are some thoughts (note that my experience is just from NACA in Atlanta):

- First, NACA is very pro-Buyer. As a seller, they won't care about you, and they have no interest in helping you get your house sold. Their only interest is protecting their buyers and ensuring that their buyers end up with a good house and a mortgage payment that's sustainable.

- Next, the way NACA works is that the buyer goes through a process of credit counseling, buying classes and workshops, etc. before they get approved. The entire process typically takes 6-12 months, but can be streamlined in some areas with weekend classes (you literally spend the entire weekend getting approved, and it's only once or twice a year from what I remember).

- The NACA process is the Buyer approval process. At the end of it, the Buyer is told how much they can spend in monthly PITI and they have to find a house at a price that supports that. They aren't told a loan or purchase amount -- just a monthly PITI amount. They (or the seller) can buy down the interest rate to keep their monthly PITI lower, if necessary.

- The NACA process is the entire Buyer underwriting process. Once they get through the process, they are approved for the loan. 100% approved. If a NACA Buyer comes to you with their approval letter, there is 100% chance they will get the loan; I've never seen a Buyer with an approval not get a loan.

- A Buyer is NOT allowed to put a house under contract to purchase until they have their approval. Again, NACA doesn't care about Sellers, and they don't care that you want to sell your house before the Buyer has their approval. They won't allow the Buyer to do a land contract or a lease option or anything like that -- they are all about protecting the Buyer and don't care if you lose the sale or not.

- Once you have a Buyer with an approval and you sign the contract with the Buyer, the process takes about 2-4 weeks (in Atlanta, where I did all of my NACA deals). This time is spent underwriting the house -- again, the Buyer is already approved. They will do an appraisal and an inspection. The inspection will be equivalent to a very good property inspection -- and you'll be asked to repair any non-trivial issue that is found.

- The inspection process and requirement for repairs is the thing that most investors dislike about NACA. That's because most investors take shortcuts in their rehabs and don't like to fix things that inspectors find. If you don't think you'll pass an inspection with flying colors and/or don't want to fix issues that are found, don't bother with a NACA Buyer. That said, most of the inspections I dealt with were very reasonable and I'm always happy to fix issues when I fully rehab a house.

- Because NACA Buyers are approved for a monthly PITI and not a loan/purchase amount, they can often afford to pay above list price for your house. Especially if you contribute some money at closing to buy down their interest rate. I've sold houses to NACA buyers for up to 10% more than I likely would have gotten from any other buyer.

- The house needs to appraise. NACA is reasonable with appraisals (I found that there were only two NACA appraisers in my area, and I knew both of them), and it used to be that NACA would fund up to 10% above the appraised value. I've heard that's not the case anymore (I haven't done a NACA deal in a couple years), but I'm not certain.

- There are agents who work for NACA and solely represent NACA Buyers. If you can find and befriend a couple of these agents, you can have a steady stream of Buyers for your houses. I used to have two agents that would call me everytime they had a new Buyer and ask, "Do you have any houses coming up? I have a Buyer for you..." This is because they knew my houses would look great to the Buyer, would pass inspections and because they knew I didn't mind the NACA closing process.

All-in-all, if you have a great house that has few issues, if you're willing to make repairs of issues that are found, if your house will appraise and if you find approved NACA Buyers, in my experience you can get top dollar for the house with a tremendously quick and smooth closing.

But, I will reiterate:

- NACA doesn't care about you as a seller. All they care about is getting their Buyers into great houses.

- NACA will not allow a Buyer to get a house under contract prior to approval.

- The NACA process is long and drawn-out. MANY people that start the program don't get to the approval stage (not because they aren't qualified, but because they're too lazy to do all the work, attend all the meetings, submit all their paperwork, etc).

The nice part about the program is that their default rate is about 1% last I heard. It's unlikely you'll sell to a NACA Buyer and then have the opportunity to buy the house back at foreclosure auction a couple years later (as I've almost done a couple times with non-NACA Buyers).

One last thing...

Many NACA Buyers are lower-income or have less-than-stellar credit. But, that's not always the case. My sister-in-law -- who makes a LOT of money and has great credit -- decided to go through the program a couple years ago. She ended up buying a duplex as her personal residence (renting the other side) -- she got into her house for $0 down and about 1.5% interest rate. She can never turn the property fully into an investment property -- NACA Buyers are required to live in the property for the duration of their ownership -- but she doesn't care about that given her loan terms.